A Financial Transactions Tax Alternative: Europe’s and Ours’

In a recent post on Truthout, Ellen Brown wrote “How Congress Could Fix Its Budget Woes, Permanently”. The essence of her piece was why not engage in a ‘quantitative easing’ policy for households and consumers. To date, the Federal Reserve, the US central bank, has pumped more than $3 trillion directly into banks, speculators, and other investors via its 3+ ‘QE’ programs since 2009. The result has been minimal economic stimulus and growth, as banks have either sat on the cash, invested it offshore, loaned it to hedge funds and other speculators who have pumped up the stock and junk bond markets to near-bubble levels. Ellen argues why not have a populist form of QE for ‘main street’, which would jump start the real economy. Her point is of course true. Central banks can pump all the supply of money into the economy they want, but if the demand to hold cash (hoarding) exceeds that supply injection, and if the velocity of money (how fast it circulates) slows dramatically (which it has), then the negative effects of both the demand for money and velocity of money more than negate the injection of money by the central bank. So Ellen argues why not bypass the banks and investors hoarding or diverting the cash they’re given by QE and the Fed to date, and inject money into the economy directly?

Ellen Brown’s argument is economically sound. But politically not realizable for many reasons. One reason is it’s too complex an economic argument to gain the necessary support from the public, and therefore it is too easy for bankers and their media talking heads to oppose and confuse the issue with the public.

So here’s another approach that achieves the same results as Ellen proposes, and is more likely to gain broad public support and therefore is more difficult for the banksters and their friends to oppose.

I’m referring to the Financial Transaction Tax.

As this piece is being written, a fight over the same Financial Transaction Tax is raging in the European Union. It is the best political and ideological, as well as economic, tool with which to oppose the nonsenses of austerity deficit cutting that has been ravaging the Euro economies for four years now. The results of austerity ‘Euro Style’ has been an inexorable march into chronic and deepening recession throughout the Eurozone. Not only are virtually all the ‘Euro periphery’ economies—Greece, Spain, Portugal, etc.—mired in a deep recession that has characteristics of a bona fide depression, but the core Euro economies are now in recession as well. Germany in the fourth quarter has officially registered a -0.6% GDP, France a -0.3% GDP, the UK is in a triple dip recession, and so forth. Collectively the EU is an economic region about the size of the US economy, which itself recorded a -0.1% decline in the fourth quarter (until conveniently revised upward recently).

On the other side of the world, Japan recorded its third consecutive quarter of negative GDP. Its policymakers have recently responded by setting off a global currency war that will further depress the global economy. China’s GDP is officially around 7.5%, down from the 10-12% range. Actually, however, it is really around 5%, given the way China manipulates its official GDP figures. India, Brazil and other emerging economies are also slowing rapidly or in recession. In short, the world economy is clearly on a slow, but inexorable downward trajectory at present that shows all the signs of continuing—as is the US economy—much of which can be attributed to various ‘austerity’ forms of programs.

Instead of counter-posing a ‘monetarist’ approach, as Ellen Brown has proposed, I would propose a people’s ‘fiscal’ approach in the form of a robust financial transactions tax. Whether pro-Wall St. (recent QE and Fed policies) or pro-Main St. (Ellen’s proposal), monetarist policies tend not to have much impact in the end and have a much longer ‘lag time’ even if they do. Better to tax the trillions of dollars wealthy investors and their corporations are hoarding and keeping ‘on the side lines’, and for the government to directly and immediately inject the tax revenue back into the economy where it has the biggest bank for the buck. That’s where the alternative idea of a Financial Transaction Tax comes in.

A Financial Transaction Tax today is a growing reality, with significant momentum underway for such right now in Europe. A recent report summarized its development in the EU, noting that a mere 0.1% tax on stock and bond trades plus a miniscule 0.01% tax on derivative trades in just 11 countries in the EU would produce annually a roughly $47 billion in tax revenue from just the 11 economies. Those eleven regions represent an economic region about two-thirds the size of the US economy. One might therefore assume the larger European Union economy, including the UK, together about the size of the US economy in terms of GDP, might easily produce $75 billion a year from the extremely modest Euro Financial Transaction Tax.

The EU financial tax proposal is really miniscule at 0.1% and 0.01%. It is also limited to stocks, bonds and derivatives and leaves out other major financial transactions, such as foreign exchange currency trades. It is reasonable therefore to have a tax ten times that proposed in the EU. That would mean a still very modest 1% tax on stock and bond trades and a 0.1% tax on derivative trades. That would produce an annual financial tax revenue of $750 billion in the US.

If the financial transactions tax were also extended to speculative trades in foreign exchange, the biggest speculative financial market on the globe in terms of dollar value worth trillions of dollars annually, the combined result of this broad-based financial transactions tax—i.e. 1% on stocks and bonds, 0.1% on derivatives, and 1% on forex trades—would easily yield $1 trillion a year in combined new tax revenue. That’s $10 trillion over the coming decade—which retires the entire run-up of around $10 trillion in the US debt from 2001-2012 under Bush-Obama. In other words, one simple tax would resolve not only annual US budget deficit issues but wipe out the entire cumulative deficits since 2001 to date!

Tax the banksters is something the general populace can get also their heads around more easily than ‘QE for all’. ‘Make the banksters pay’ should be the thrust of recovery programs—not deficit reduction, aka ‘austerity American style’, which is still the driving policy force in Washington DC.

Banksters aren’t afraid of QEs. They love them. They’ll figure out a way to manipulate them to their further gain. A Financial Transaction Tax is another matter. That’s why the US banksters are becoming apoplectic about the developments in Europe now gaining growing public support for a financial transactions tax.

For example, the Wall St. Journal’s, February 14, lead business page article declared “U.S. Slams EU’s Tax-on-Trades Plan”. So not just the banksters themselves are seriously worried now about a financial transactions tax, but their good friends in the US Treasury have weighed in now in support of the banksters, slamming the Europeans’ idea, declaring “we do not support the proposed European financial transactions tax…because it would harm US investors”. That’s a good sign of something real happening.

As the Wall St. Journal further noted, “The potential reach of proposed (financial) taxes, and the speed at which they could spread, has caught Wall St. off guard”.

The banksters aren’t afraid of proposals for QE for main street. They know that won’t fly or that their business talk show talking heads and political friends in government can easily deflate and divert the idea. But they are terrified of the idea of a Financial Transaction Tax because of its possible public support, that could catch popular fire and spread rapidly—as evident in the idea now taking hold in Europe.

So to summarize: tax the banksters and speculators with 1% on all stocks and bond trades, 0.1% on all derivatives trades, and 1% on all foreign exchange trades—and thereby raise $1 trillion in new revenue per year. Discontinue all the current nonsense about deficit cutting and even raising other forms of new tax revenue. All that’s needed is a real Financial Transactions Tax. The banksters and speculators aren’t spending the $13 trillion they’ve been given by the Federal Reserve since 2008 on jump-starting the US economy anyway. Monetary policies don’t work for anyone but the banksters. So let’s tax the SOBs and all those speculators now pumping up the stock and junk bond markets, creating the new financial bubbles of tomorrow in stocks, junk bonds and derivatives that will inevitably lead to another financial crash well before the end of this decade—a crash that will make 2007-08 pale in comparison.

Jack Rasmus

Jack is the author of “Obama’s Economy: Recovery for the Few”, 2012, Palgrave and Pluto press. His website is: http://www.kyklosproductions.com; he blogs at jackrasmus.com and his twitter account is #drjackrasmus.

And Wm. Black today published an article about control fraud of banks leading to the financial system’s self-destruction. I left a comment at the bottom, and I drew much of my info from Epic Recession, which impresses me more and more every time I read through it. So here’s my comment:
I don’t believe that the severity and damage of the Great Recession has yet been reported. Immense damage was done to ordinary household budgets and savings.
A look at Edward Wolff’s report of August 2012, “The Asset Price Meltdown and the Wealth of the Middle Class” states that median household net worth dropped, 2007 to 2010, from $107,800 to $57,000, a 47% drop in 3 years. The Wolff report, page 55, also reports that the median household’s net worth sank below the 1969 level, a loss of about 40 years of savings. The ratio of median net worth to mean net worth exploded from 1 to 3.7 in 1969 to 1 to 8.6 in 2010. Inequality was writ large. The Congressional Research Service reports that half the U.S. households own 1.1% of all household net worth, the other half own 98.9%. Again, inequality writ very large. (see: http://www.epi.org/blog/confirming-redistribution-wealth-upward/)

The Statistical Abstract states that the mean average U.S. household net worth declined by $12.9 trillion ($64,179 trillion to $51,309) in one year, 2007-2008, a 20% drop in household net worth.

In January economist Jack Rasmus on his radio broadcast claimed that 13.7 million home owners (mortgage payers) have lost their homes since 2006 through foreclosures or short sales. This is about 26% of all home owners.

Economist Sylvia Allegretto stated in The State of Working America’s Wealth that home owner equity in U.S. homes had dropped from about 60% to below 40%, the first time that banks owned a majority of home value.

In Rasmus’ book Epic Recession, page 232, he reports, “According to the business research firm, Thompson Reuters, between 2000 and 2007, more than $17 trillion in mortgages were bought by the shadow banks, half of which were sold off to foreign buyers.” On the previous page he quotes a WSJ article, “Between 2004 and 2007, Lehman securitized more than $700 billion in assets, according to its annual filings. About 85% of these, or about $600 billion, were residential mortgages.”

Between 1998 to 2008 financial corporate debt (bank debt) more than doubled, increasing by 130%, while the GDP per capita grew by 34%. Debt to financials increased at 4 times the rate of growth, 1998-2008.
On Rasmus’ page 220 he includes a table “Total Debt, U.S. 1978 – 2008”, drawn from the Fed’s Flow of Funds report, Table D.3, June11, 2009. It shows that between 1998 and 2008 “Financial Business” debt tripled, moving from $6,328 trillion to $19,486 trillion. Adjusted for inflation it increased by 130%. Total Domestic debt adjusted for inflation increased by 72%, in nominal terms from $22 trillion to $50 trillion. Total domestic debt therefore hit a record high of 74% of all household net worth. In the same years the GDP per capita increased by 34%, using the calculator at measuringworth.com.

Why would a banking system, and shadow banking system, increase debt 4 to 5 times faster than economic growth? The end result was self-destruction and taxpayer bailout. The reason: It’s called control fraud.

It is about time the public wakes up to the criminality of this mess and finds the financial system guilty en masse, and then real reform will begin.
My blog, http://benL8.blogspot.com

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